N.Y. Reins In For-Profit Colleges

Citing scandals, state regents forbid new programs pending a review of regulations and rules.
January 23, 2006

New York State has put a moratorium on the establishment of new programs by for-profit colleges while officials examine perceived abuses and the state’s existing policies to combat them. The step is the latest in a string of actions suggesting that states and other regulators are ratcheting up their scrutiny of, and turning up the heat on, commercial colleges.

The decision by the New York State Board of Regents, which oversees education and accredits institutions to operate in the state, came at the regents' meeting this month during a discussion about a series of problems involving some of the 41 career colleges certified in New York. Last month, state officials imposed enrollment limits on Interboro Institute, which is under state investigation for its admissions practices. In his budget plan this month, Gov. George F. Pataki proposed a set of changes in the state's need-based financial aid program aimed at restricting for-profit colleges from receiving aid for students with insufficient academic preparation.

And last fall, the Queens district attorney charged two former business officers with embezzling more than $800,000 from the Drake Business Schools, which closed in June 2004 amid of sea of regulatory and financial struggles.

(For-profit higher education has also been in the New York consciousness for another reason: the campaign of the state's Republican candidate for governor, William F. Weld, is being damaged by the travails of Decker College, a shuttered for-profit institution in Kentucky that Weld managed for a time. Kentucky officials have charged the college with "deceptive practices.)

Given the plethora of problems, the regents accepted a staff recommendation to freeze all new applications from for-profit colleges, deciding that "rather than continue to expand these programs, we ought to just plant ourselves in a way that we can assess truly what's going on," said Merryl H. Tisch, a regent. Tisch said the regents would await a review by the New York State Department of Education on proprietary colleges, to determine whether "these problems are widespread, or are these isolated incidents?"

New York certifies 41 for-profit colleges to offer degrees in the state, and in the fall of 2004, they enrolled nearly 50,000 students, according to the state education department. Students at the institutions receive more than $100 million in funds from the state’s Tuition Assistance Program -- “not small change,” said Saul B. Cohen, another regent.

Tisch said the career colleges are important to "thousands of people in this city who graduate high school and who for one reason or another don't go on to community colleges," and to "immigrants who need to have the ability to come to this city and get prepared for jobs."

"But we have to make sure that the public is protected and our standards are being upheld. We don't want this to become so scandal-ridden that people will become afraid to use these institutions. We owe it to the public to really evaluate what's going on in the field, so we can assure consumers that we are monitoring these institutions."

Cohen, president emeritus of the City University of New York’s Queens College, agrees that “we have not paid adequate attention” to the 41 degree granting for-profit institutions in the state -- and that doesn't even consider the hundreds of other commercial institutions that do not offer degrees. The Education Department is investigating several other institutions besides Interboro, Cohen said, but its small staff cannot possibly keep tabs on the institutions on a case by case basis.

So the state needs, he said, to ask a “much broader question, which is how do we go about monitoring colleges of that type?”

The New York action is the latest sign of what could be perceived as a shift in the wind for the for-profit higher education sector. Commercial colleges, as a group, have gained significant ground in the marketplace and cemented their reputation as a legitimate alternative, particularly for adult students, bringing them enhanced political support in Washington and boosting their profits on Wall Street.

But in the last year or so, state and federal regulators have examined a growing number of instances of alleged wrongdoing by career colleges. Career Education Corp., for example, has been the subject of a brutal “60 Minutes” episode and the target of investigations in multiple states, but it is not alone in facing closer regulatory examination.

Although officials of the colleges are quick to note that many of the investigations and inquiries have ended with no findings of wrongdoing -- “more smoke than fire,” as one of them put it -- the stepped-up scrutiny clearly concerns them.

Sharon Thomas Parrott is senior vice president for government and regulatory affairs and chief compliance officer at DeVry Inc., which operates the DeVry Institute of Technology in Long Island City, N.Y., and a Keller Graduate School of Management campus in Manhattan. New York is "one of the toughest states to operate in" because its standards are "more like an accrediting body than a licensing body." State officials are asking "good questions," she said about whether the problems they are apparently seeing with Interboro and other local institutions are "an isolated incident" or if there is "something in the way they regulate that causes or provides opportunity for this kind of thing."

As for the larger political and regulatory climate, "there is always questioning about for-profit institutions by the larger educational industry, because there’s this not complete understanding about how one reconciles profit and education," Parrott said. It's too early to know, she added, whether this latest "flurry of activity" in New York and elsewhere will have an impact on for-profit colleges nationally.


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